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Raising your own rates even if the Fed won't

The Federal Reserve signaled on Wednesday that it will be "patient" before raising interest rates again, but you should put your money in motion.

In a few minutes and with a few clicks of a mouse, you can crank up the yield on your cash by two percentage points, often adding hundreds—even thousands—of dollars to your investment income annually. The only hard part is overcoming your own inertia.

The nearly $8 trillion of cash in savings deposits at commercial banks is earning interest at an average rate of 0.09%. The more than $1 trillion of cash at brokerage firms is paying investors just under 0.3% on average, estimates Peter Crane, president and publisher of Crane Data, a firm that monitors cash and other short-term investments.

Meanwhile, savings accounts at online banks and short-term U.S. Treasury securities are yielding 2% to 2.5%. Savings accounts are federally insured against loss, generally up to $250,000; U.S. Treasurys are considered risk free.

Capturing such higher rates on your cash is "the only place in the whole investment world where you can get additional return without bearing additional risk," says Greg McBride, chief financial analyst at Bankrate.com.

In all likelihood, the only thing stopping you is you.

Inertia may be the most powerful force in financial physics. Once you have cash in a bank or a brokerage account, moving it will tend to feel harder—perhaps even "riskier"—than leaving it there. In what economists call "the flypaper effect," money tends to stick wherever it lands.

One study of roughly 850,000 participants in a retirement plan found that 72% had never changed how much they invested in which fund. At a major discount brokerage, more than one-fifth of customers, making nearly 460,000 trades all told, never sold a single stock whose price had fallen. At various companies, 50% to 80% of workers who were automatically enrolled in a retirement account left their contribution rate untouched, although they were free to change it at any time.

I'm just as inertial as everybody else: My checking account has been at the same bank ever since August 1977.

But I moved most of my cash years ago, and you should too.

Many money-market mutual funds are paying 2% and up. Although they aren't backed by the government, they hold short-term securities whose value tends to hold steady. (A money fund yielding much more than 2.5%, however, is probably taking excessive risk.)

At Vanguard Group this week, taxable money-market funds were yielding between 2.31% and 2.48%, and tax-exempt money funds yielded 1.19% to 1.32%. Fidelity Investments and Charles Schwab Corp. , among other firms, also offer money-market funds with attractive yields.

For an investor in the 32% federal tax bracket who lives in such states as California, New Jersey or New York, a 1.25% yield on an in-state tax-exempt money-market fund can be as attractive as 2.2% or 2.3% in taxable income, says Robert Gordon, president of Twenty-First Securities in New York.

Savings accounts at Marcus, the online bank operated by Goldman Sachs Group Inc., are paying 2.25%, with no minimum investment required. It takes only a few minutes to open an account; U.S. deposits at Marcus grew in 2018 by 65%, to more than $28 billion.

Another online service, MaxMyInterest.com, offers several features that could save you time as well as money.

The firm isn't a bank; it functions like a financial switchboard, automatically rerouting your money among the online banks in its network to get the optimal blend of yield and safety. A common account application grants you streamlined access to two of the six online banks in MaxMyInterest's network, with more banks to come.

Once a month, MaxMyInterest reallocates your deposits among banks to keep your income as high as possible and all the federal insurance in place. You set a target level for the checking-account balance at your primary bank, and MaxMyInterest will automatically sweep money into or out of that account to keep your balances on target. The firm also consolidates tax reporting from all the banks in its network.

As of this week, MaxMyInterest is offering a top savings-account rate of 2.46%. The firm charges 0.08% in total fees annually. About half of MaxMyInterest's business is through financial advisers, who use the firm to obtain higher yields on their clients' cash, says founder and chief executive Gary Zimmerman.

Other firms, including StoneCastle Cash Management, offer similar services to financial advisers and brokers. So, if your adviser isn't earning you at least 2% on your cash, you should demand to know why.

If you are still earning only a fraction of a percentage point on your own cash, kick yourself into motion. You may never get an easier chance to raise your return at no extra risk.

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Content for this page, unless otherwise indicated with a Fidelity pyramid logo, is published or selected by Fidelity Interactive Content Services LLC ("FICS"), a Fidelity company with main offices in New York, New York. All Web pages that are published by FICS will contain this legend. FICS was established to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications. Content selected and published by FICS drawn from affiliated Fidelity companies is labeled as such. FICS selected content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by any Fidelity entity or any third-party. Quotes are delayed unless otherwise noted. FICS is owned by FMR LLC and is an affiliate of Fidelity Brokerage Services LLC. Terms of use for Third-Party Content and Research.